Looking into JD.com’s Successful Turnaround Fight in 618 [2/2]

In the last article, we discussed the causes of this year’s 618 becoming the hardest, which are COVID-19, widespread discount seasons, and customers’ restraint towards impulse shopping. We also predicted the major hottest segments in this year’s 618: Home Appliance, Medical Beauty, and Food. As 618 originated in JD.com, we will further discuss whether JD.com could win the game this year or not.

The one with the highest possibilities to maintain its glory in 2022’s 618

From our perspective, as the root of 618, JD.com might succeed in this game. Because JD.com covers varieties of products to sell on its platform. The categories mentioned in part two all have their stores or products sold on JD.com. JD.com also has relatively better logistics, attracting more companies to either join or increase their stocks. JD.com can provide faster and safer deliveries. JD.com has had a rising number of users over the years, with new records marked in every year’s 618. JD.com also has a higher favorability of users, because of its “Suicide logistics in Shanghai.” As released by JD.com, it has spent more than CNY 2 billion on its anti-pandemic service over the past 80 days. 

From our analysis. JD.com’s main idea of logistics in 618 is more detailed, friendly, and centered. JD.com will work on providing a supply chain with humanity and responsibility. Their plan of “Two horizontals & four verticals” aims to provide a healthier, open, and orderly new ecology. Two horizontals refer to the capabilities of JD.com, including both hard supply chain and soft supply chain. Four verticals refer to the application scenarios of the supply chain, including major nodes, green carbon reduction, consumption stimulation, and industry promotion. From our perspective, its weaving plan provides better logistics to its customers, both comparably better than its competitors and itself. With the help of 43 “Asia No.1” large-scale logistics parks and more than 1,400 warehouses, JD.com builds a multi-level warehouse distribution network. We believe under the detailed planning in warehouse locations, JD.com will provide a more guaranteed logistics service, with higher possibilities to realize same-day and next-day delivery. With a unique definition of its supply chain and a well-planned warehouse distribution network, we anticipate more orders and contracts of JD.com from customers and product providers.

 In comparison with its competitors through logistics, we believe that JD.com has a faster self-owned delivery service and a bigger warehouse network. Alibaba’s Cainiao provides services for Taobao and Tmall shopping. Cainiao mostly works as the intermediate hub. Cainiao has established 7 warehouse distribution hubs across the country. Cainiao also added more square meters to its warehouses in 21 cities across the country. However, the numbers and space of Cainiao’s warehouses are much smaller than JD.com’s. In addition, nearly all of Taobao and Tmall’s deliveries have to rely on other delivery companies, such as Yunda Express, STO Express, YTO Express, SF Express, and others. All of these delivery companies might not provide delivery services that are faster than JD.com, implying JD.com’s success in logistics. 

We think JD.com has more precise and strengthened marketing strategies in 618 for both internal providers and external customers. Externally speaking, to customers, this year’s JD.com has the largest discount and a more extended pre-sale period. JD.com maintains its usual activities, such as red envelopes and surprising coupons. Its “Hourly Goods” section includes flash sales, instant kills, live broadcasts, and others. The “Crazy 28 Hours” will begin at 8 P.M. in China Standard Time on June 17, 2022. What’s more, JD.com even has the largest discount in history – CNY 50 off if you exceed CNY 299, drawing more attention from its customers. And we believe if someone is choosing between JD.com and other platforms, it is very likely to select JD.com because of its realistic discount and other promotions. This discount is larger than other competitors such as Tmall. JD.com also offers the promotion that price can be obtained even if you have received coupons. JD.com also changes its official discount launch time from midnight to 8 P.M. in China Standard Time, creating a more friendly shopping time for its customers. Internally speaking, to providers, JD.com provides 30 sections of “Three Reductions & Three Excellences” to better support businesses. The detailed policy aims to reduce costs, assessments, and risks. It also hopes to optimize rules, efficiency, and services. From our perspective, with the help of nuanced policy, providers will bound a mutual trust with JD.com, providing lower prices and more products to sell on the platforms. 

In comparison with its competitors through marketing strategy, we think JD.com has the most significant discount, most prolonged discount period, and more detailed benefits to its providers. Tmall and Pinduoduo’s discounts are CNY 50 off if exceeding CNY 300, and Suning’s discount is CNY 30 off if exceeding CNY 200. As a result, JD.com’s discount was the largest among its competitors. In this year 618, JD.com’s discount period is from May 23 to June 20, starting 3 days earlier than Tmall. Talking about benefits to provides, Tmall has 25 sections, covering 5 aspects - financial subsidies, logistics dredging, traffic subsidies, special measures for the epidemic, and technology upgrades. This indicates that JD.com has a larger number and more detailed sections to support its providers.

We believe that with the arrival of new innovative products sold in 618, JD.com draws more attention from customers in related fields. JD.com sells a series of digital collections, such as Tang Palace Night Banquet, Shuping Liang’s works, Football news of 1980, and Optimus Prime. Its first-ever creative marketing of IP content allows consumers to experience the brand-new ancient dragon martial arts culture. In our opinion, the combination of digital collections and martial arts culture might invite more customers in the martial arts field to buy JD.com’s products. JD.com also sends out gifts such as Journey to the West related, and its commemorative coins. We think this promotion could potentially raise customers’ interest in buying related products through JD.com.  

Past data foreshows its success

After analyzing its policies and promotions, we could predict its results through the past data. Since 2022, the turnover of new products in the categories of beauty, food, and home has grown rapidly, even faster than electrical goods. As provided by JD.com, the category of food was counted as 28% of the overall spending summary in 2022; the category of home was 19%; the category of beauty was 10%; the outdoor sport was 10%. As of May 29, JD.com’s pre-sale had a more than year-over-year 20% increase in participated product categories. The pre-sale orders of home appliances and electric devices exceeded 100 million. This new record was much faster than its competitors, such as Alibaba and Pinduoduo. As disclosed by JD.com, since the official launch of 618 on May 31, the four-hour turnover exceeded that of the whole day on June 1 last year. The order volume of home appliances and medical beauty products, such as beauty devices and laundry beads, increased by more than thousands year over year. The order values of home appliances and electric devices even exceeded CNY 100 million within 10-minute since the official launch. The order values of sportswear increased by 180% year-over-year. Especially the sportswear T-shirt’s 230% increase year-over-year and Anta’s 12 times increase year-over-year also marked the success of JD.com. As of 17:23 in China Standard Time on June 1, 2022, the number of out-of-warehouse orders and the number of delivered orders of JD.com have exceeded the respectfully amounts on the same day last year.

Looking into the latest financial report of JD.com, which is Q1 2022, the company had a net loss of CNY 3 billion in the first three months of 2022. This is the third consecutive quarters of JD.com under financially-loss condition. JD.com concluded the reasons for loss to be its continuous investment in infrastructure, technology research and development, and employee compensation. However, JD.com’s revenue in its self-operated brand increased by 17% year-over-year, indicating that its performance of actual daily function was better than the market expected. During the past months, JD.com spent a huge amount of money on providing services due to China’s COVID-19. JD.com even helped its providers by reducing its own profits and the impacts towards the providers from COVID-19. JD.com’s charitable deed in Q1 2022 has gained a better reputation both from the public and its providers. Therefore, we think those who benefited from JD.com’s services have a higher tendency to choose this platform over others. And with the combination of better promotions and logistics, JD.com could undoubtedly be the best choice among the e-commerce market in 618. JD.com also paid its full attention to 618, as this might be its only chance to earn profit in the short term. Its related policies and strategies have implied JD.com’s determination to win in this game. 

Valuation after 618

As mentioned prior, JD.com has experienced net losses for three consecutive reported quarters. We take this factor into consideration, and use the P/B ratio - also known as the price/book ratio - to analyze its valuation. The comparable companies we picked are Alibaba Group Holding Limited, Vipshop Holding Limited, and Pinduoduo Inc. As of June 16, 2022, the P/S ratios of these companies are 1.93, 1.38, and 6.27. The average P/S ratio of these companies is 3.19. The P/S ratio of JD.com is 3.08, roughly the same as the average. This comparison implies that JD.com is at a neutral rating.

Imagining the future of JD.com, we believe that JD.com has the relatively highest percentage to maintain its success in 618. With its largest and most friendly promotions externally and internally, JD.com meets a higher volume on both users’ side and providers’ side. We think JD.com’s logistics can help the company stand out if it maintains its plan to provide the supply chain with humanity and responsibility. Its weaving plan could potentially push JD.com’s status into a higher level. As China has experienced a faster improvement in logistics, same-day or second-day delivery seems to be a future trend that people will want to seek into. From our perspective, JD.com’s business plan of building a detailed warehouse distribution network will be the stepping-stone for its more completed supply chain service. Therefore, increasing numbers of providers and customers will choose JD.com because of its fast delivery, friendly reputation, and sufficient product supply. JD.com’s current data in this year’s 618 also indicates its success compared with other competitors.